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AFC Uzbekistan Fund December 2019 Review

Dear Investors and Friends,

2019 was an exciting year with the launch of the AFC Uzbekistan Fund on 29th March 2019 and a more than doubling in assets under management in its first nine-months. In the face of the Central Bank free-floating the Uzbek Som, which saw the currency depreciate by 13.1% in 2019 and 13.3% since the launch of the fund, the fund nonetheless returned positive performance with its December NAV estimated at USD 1,089.05 (+1.30% in December), according to internal calculations. 

December saw the government privatize a further 5% tranche of listed glass producer Kvarts (TSE: KVTS), which was 101.4% subscribed for. This was an encouraging sign to us that domestic interest in the stock market is increasing, since during the company’s IPO in April 2018 when the first 5% of the company was sold, the IPO was only 54% subscribed for.

Further, on 22nd December Parliamentary elections were held and with 71.1% voter turnout 125 deputies of the 150 seat lower house of the Oliy Majlis (Uzbek Parliament) were elected. The second round of elections are to be held on 5th January 2020.

As 2019 comes to a close, the team at Asia Frontier Capital would like thank you for your continued interest in the AFC Uzbekistan Fund and wish you and your family a healthy, happy and prosperous 2020.

AFC Uzbekistan Fund valuations as of 31st December 2019:

Estimated weighted harmonic average trailing P/E (only companies with profit): 4.18x
Estimated weighted harmonic average P/B: 0.69x
Estimated weighted portfolio dividend yield: 8.64%

2019 Highlights:

2019 may best be characterized as the year of significant policy announcements, helping Uzbekistan to earn the title of the nation which improved the most in 2019, according to The Economist magazine (link here). 2020 should therefore be the year these announced policies are implemented and strength-tested.

Currency liberalization opens the Uzbek market to foreign investment:

On 2nd March 2019 capital controls for foreign investors were formally lifted, with Asia Frontier Capital being the first foreign investor to successfully repatriate capital back to Hong Kong. This move was followed by the lifting of capital controls for Uzbek nationals on 20th August, 2019; the same date also saw the Central Bank announce that it was transitioning the Uzbek Som from having a managed free-float to being free-floating. Leading up to the announcement the Som had lost several hundred basis points versus the USD, helping the Uzbek Som end 2019 down 13.1%. The floating of the currency having been a one-off event, we anticipate Som depreciation versus the USD in 2020 to be significantly lower, likely in the 4% to 7% range.

USD/UZS Exchange Rate for 2019

(Source: Bloomberg)

Foreign investors permitted to buy bank stocks:

On 6th September 2019, the Central Bank lifted a ban on foreign ownership of banking stocks, in place since 2008. This was a milestone for the development of the capital markets where listed banks represent approximately 83% of the market capitalization of the Tashkent Stock Exchange, helping to increase liquidity and provide an alternative financing mechanism for banks to raise capital. Uzbek banks are amongst the best avenues to gain exposure to the under-leveraged consumer and SME’s, with private credit to GDP estimated at roughly 15% of GDP.

Following this change in legislation during September, on 25th November Uzpromstroy Bank (TSE: SQBN), the “Industrial and Construction Bank,” issued a USD 300 mln 5-year Eurobond with a YTM of 5.75% (initial expectations were for 6.5%) which was 4x oversubscribed. SQBN’s credit profile is rated as BB- with a Stable outlook by S&P. On the equity front, on 23rd December, Hamkor Bank announced plans to issue 2.6% new equity through the stock exchange, a sign that banking sector activity is heating up.

Presidential support of capital markets reform and a conference bonanza:

2019 proved to be a busy year for conferences on Uzbekistan with the country receiving increased attention at two conferences in Georgia, one in London, several government forums in USA, and on 15th November a conference in Tashkent which was hosted by the Capital Markets Development Agency (CMDA) with roughly 200 attendees, approximately 30% of whom were foreign investors, bankers and consultants.

Following a meeting on 7th October 2019 where President Mirziyoyev met the CDMA and Agency for State Asset Management, he directed them to “consolidate all relevant laws, acts and decrees into a single, simple and flexible capital markets code by the end of 2020.” With the President’s endorsement to advance the development of the capital markets, after the investor conference in November, the CDMA announced there will be at least 4 IPO’s/SPO’s of state-owned enterprises in 2020, including the Uzbek Commodities Exchange (TSE: URTS) and Jizzakh Plastics (TSE: JIPL), an indication that momentum for capital markets reform and state privatizations are increasing.

AFC Uzbekistan Tour 2020

Asia Frontier Capital will be hosting its second investment tour to Uzbekistan from 29th April to 2nd May 2020. We will be taking a small group of investors to experience this wonderful country and better understand the economic and social transformation taking place on the ground today. The Uzbekistan Investor Tour will start in Tashkent on 29th April 2020, with a welcome dinner at City Grill. On 30th April and 1st May we will be conducting site and boardroom meetings with publicly listed companies in the sectors of chemicals, pharmaceuticals and financial services to understand how these businesses operate in the local capital market environment on a daily basis. For the final part of the trip, on 2nd May we will visit the ancient Silk Road City of Samarkand for the day, taking the Afrosiab bullet train around trip. This will give us the chance to absorb the unique beauty of Uzbekistan and see one of the many wonders that will attract millions of new tourists to the country in the coming years.

If you would like to join us on this tour please contact us at This email address is being protected from spambots. You need JavaScript enabled to view it. and we will provide you further information.

For further viewing here are some interesting, relevant news links related to Uzbekistan: 

Uzbekistan most improved nation in 2019

Uzbekistan embraces the international capital markets

Almalyk copper & gold company to invest USD 3.5 bln to double production

Why Uzbekistan is said to be a top travel destination for 2020